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I agree that it doesn't affect demand of labour. But it affects supply of labour. Suddenly there will be workers who are willing to work for less than whatever was the lowest rate labour was supplied at before because of the government subsidies (who may, for instance, be currently unemployed).

I'm still perplexed at why you would think this is as it assumes that labor is only concerned with achieving $x rather than wanting more than $x.

People don't accept pay cuts because they inherited money, won at blackjack or came into it in some other manner. And they don't accept pay cuts because of a subsidy, tax rebate etc either.

Aside from that, earned income credits have empirically been successful at lifting low income earners out of poverty, not just creating a substitution of who pays their wages.

Although I would advocate going farther with it and not tie it to work, rather replace existing redundant and ludicrously wasteful welfare schemes with a streamlined negative tax that can accomplish the same goals at much lower costs, it would just need to be phased out in a way that always encourages work. Earned income credits and welfare reforms that encourage work are smaller versions of the same idea,

I'm still perplexed at why you would think this is as it assumes that labor is only concerned with achieving $x rather than wanting more than $x.

People don't accept pay cuts because they inherited money, won at blackjack or came into it in some other manner. And they don't accept pay cuts because of a subsidy, tax rebate etc either.

Hmm, I think I'm starting to get it. The marginal value of each hour worked will actually decrease up to a point because you effectively only earn 50 cents on the dollar. So if anything the labour force might demand HIGHER salaries, because they get subsidized on the dollars they don't earn.

__________________There are two kinds of fact - the trivially true, and the technically correct.

Hmm, I think I'm starting to get it. The marginal value of each hour worked will actually decrease up to a point because you effectively only earn 50 cents on the dollar. So if anything the labour force might demand HIGHER salaries, because they get subsidized on the dollars they don't earn.

We're discussing negative taxes as an alternative to welfare/minimum wage.

Oh, I see. You appear to think that the value of any job must be at minimum equal to a living wage (however you are defining that)? It would be nice if that were true, but ultimately the value of a job is the value that employee provides to the company.

You still seem to be under the impression that employee "needs" determines the value of their labor?

Oh, I see. You appear to think that the value of any job must be at minimum equal to a living wage (however you are defining that)? It would be nice if that were true, but ultimately the value of a job is the value that employee provides to the company.

You still seem to be under the impression that employee "needs" determines the value of their labor?

That's the side of demand for labour, but there's the supply of labour side as well. Ultimately they must meet, and exactly where, and the resulting value created, result profits etc depends on many things in the market.

What I'm trying to understand is exactly how a government subsidy would affect the supply of labour. Initially I thought that it would push down wages and increase the supply - but this is clearly absurd as the subsidy will not cause employees to place less value on their work hours.

However, up to the breaking point where the taxes stop taking effect, every extra marginal dollar earned will only bring 50 cents worth of value to the employee, as the government will subsidize 50 cents less. This should have some, however small, effect causing the labour force to actually value their labour hours higher. This of course is the case with any welfare.

__________________There are two kinds of fact - the trivially true, and the technically correct.

That's the side of demand for labour, but there's the supply of labour side as well. Ultimately they must meet, and exactly where, and the resulting value created, result profits etc depends on many things in the market.

What I'm trying to understand is exactly how a government subsidy would affect the supply of labour. Initially I thought that it would push down wages and increase the supply - but this is clearly absurd as the subsidy will not cause employees to place less value on their work hours.

However, up to the breaking point where the taxes stop taking effect, every extra marginal dollar earned will only bring 50 cents worth of value to the employee, as the government will subsidize 50 cents less. This should have some, however small, effect causing the labour force to actually value their labour hours higher. This of course is the case with any welfare.

Where are you getting fifty percent from? Can I assume you Googled up video of Milton Friedman explaining the idea? Fifty percent doesn't have to be the number, it is just very useful for illustrative purposes as it makes the math extremely easy. IIRC, the US Earned Income Tax Credit is phased out at 10-16% (it has been a long time since I looked at that, the exact numbers may be slightly different) depending on various factors. And at this level of income most people will see a significant incentive to earn more.

He is talking about the phase out of schemes like the American Earned Income Tax Credit. Empirically they have been much more successful at reducing poverty than market distorting schemes like minimum wage laws that have a tendency to create poor to poor wealth transfers.

Where are you getting fifty percent from? Can I assume you Googled up video of Milton Friedman explaining the idea? Fifty percent doesn't have to be the number, it is just very useful for illustrative purposes as it makes the math extremely easy. IIRC, the US Earned Income Tax Credit is phased out at 10-16% (it has been a long time since I looked at that, the exact numbers may be slightly different) depending on various factors. And at this level of income most people will see a significant incentive to earn more.

Yeah, it was just an example I got off a webpage explaining the idea.

And, as I look closer at it, there really doesn't seem to be any problem with it that doesn't already exist with standard welfare.

__________________There are two kinds of fact - the trivially true, and the technically correct.

Has the President posted a justification for setting the national minimum wage at $9 hr? Anyone who proposes something that will interfere with the market bears the burden of proof of showing that the interference will actually work.

Although I would advocate going farther with it and not tie it to work, rather replace existing redundant and ludicrously wasteful welfare schemes with a streamlined negative tax that can accomplish the same goals at much lower costs...

Now we are on the same wave length.

Originally Posted by respect

...it would just need to be phased out in a way that always encourages work. Earned income credits and welfare reforms that encourage work are smaller versions of the same idea,

The minimum wage shouldn't be raised because real estate and rents haven't increased.

You believe this means that the cost of living hasn't increased as well?

__________________All national institutions of churches, whether Jewish, Christian or Turkish, appear to me no other than human inventions, set up to terrify and enslave mankind, and monopolize power & profit - Thomas Paine

But as most regular folks admit, the prices are going up. (even if at low rates, as Fed policy folks would happily tell you, and some others scream at you).

But if in the end we are talking about prices increasing because of this; why would you think someone just above a future minimum wage would find things unaffordable, but have people earning under the hike number find things just as expensive & affordable as they need them to be, just to survive.

In other words, how many people do we still need in the servant class?

I'm a bit confused by this, you would be for streamlining welfare but against having the system encourage working?

I don't think that I have ever seen this post before. The idea that a negative income tax would require separate measures to encourage work runs counter to the concept of a NIT and suggests a lack of knowledge of what a NIT actually entails.

Just as under capitalism you don't need an army of bureaucrats to deal with the logistics of the production and distribution of bread and milk, under a NIT you don't need an army of bureaucrats to deal with wage or welfare equity. It is self-adjusting.

The idea is that every income earner (whether it be corporate or individual) is taxed at the same rate. This means that there is no point in trying to hide the income in corporations/trusts since wherever the income is, it will be taxed the same way. The revenue from the NIT provides a pool of funds which can be equally divided among all adult citizens.

The self-adjusting feature of NIT comes from the fact that the amount of handout that each person gets depends on the size of the pool raised by NIT (no more structural deficit problems). If people decide that they don't want to work and just live on the handout then the pool will shrink resulting in a smaller handout and forcing more people back into the workforce. A similar effect occurs if businesses try to cut wages (assuming that less wages = more profits). Fewer people would be inclined to seek employment so employers would have to increase their offer.

Since the handout isn't means tested, there is no work dis-incentive for welfare recipients.

__________________"The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent." - Galbraith, 1975

Another alternative might be for employers to carry fewer employees in order to make up for the increased wages. For example, say I ran a fast food joint where I employed 4 workers on a shift at $7.00 an hour. Because government has mandated a higher wage, now I'll cut one worker and that shift will be run with three workers at $9.00 an hour.

The remaining workers may have to work harder and put out more but I don't think too many employers will just eat the loss unless the number of staff they have is vital to getting the work done with little or no alternatives.

For example, say I ran a fast food joint where I employed 4 workers on a shift at $7.00 an hour. Because government has mandated a higher wage, now I'll cut one worker and that shift will be run with three workers at $9.00 an hour.

If an employer could make do with three staff instead of four, don't you think they would be doing so already?

__________________"The process by which banks create money is so simple that the mind is repelled. Where something so important is involved, a deeper mystery seems only decent." - Galbraith, 1975

If an employer could make do with three staff instead of four, don't you think they would be doing so already?

Not necessarily. Where I live, entry level workers can be hard to find, so for example the McDonald's near my house pays (I think) $8.25 an hour but they always carry a skeleton crew. Sometimes during lunch rush, they have the drive thru and only one cash register open while the line literally goes out the door.

Not necessarily. Where I live, entry level workers can be hard to find, so for example the McDonald's near my house pays (I think) $8.25 an hour but they always carry a skeleton crew. Sometimes during lunch rush, they have the drive thru and only one cash register open while the line literally goes out the door.

And so - even if they otherwise would - they will not get my money....If fast food isn't a)fast and b) edible+ they won't either.

__________________There is no problem so great that it cannot be fixed by small explosives carefully placed.